EU Commission proposes €7 billion loan to Greece

As European Commission prepares to provide Greece with emergency loan through European Union’s financial stability mechanism (EFSM), Britain says an alternative solution should be found

Photo by: Reuters
Photo by: Reuters

Updated Jul 28, 2015

The European Commission is proposing to give a €7 billion ($7.7 billion) bridge loan to Greece to cover the country's financing needs in July using the European Financial Stability Mechanism (EFSM), according to documents from the EU executive.

The proposal, seen by Reuters, says the bridge loan would have a maximum maturity of 3 months and would be repaid to the EFSM from money that Greece is to get from the eurozone bailout fund, the European Stability Mechanism (ESM), on the conclusion of negotiations on the next, 86 billion euro three-year bailout.

The proposal to use the EFSM for the bridge loan is controversial because Britain and the Czech Republic are strongly opposed to such a move.

However, British Prime Minister David Cameron believes a solution can be found to provide bridge financing to Greece while not putting British taxpayers' money on the line, Cameron's spokeswoman said.

"From the discussions that have been taking place this morning, it's clear that a number of other countries have concerns about this. I think there are a number of solutions that can be found," she said.

"We have always been clear that British taxpayers' money is not going to be used to provide finance for a eurozone Greek deal and that therefore this is a non-starter," Cameron's spokeswoman added.

Unlike the ESM, which is a eurozone fund, the EFSM is an EU-wide fund, backed by the EU budget. Therefore disbursements from it need the approval of all of the EU's 28 governments, rather than just the 19 of the eurozone.

But decisions in the EFSM are taken by qualified majority voting, which means that if 16 countries representing 65 percent of the EU's population support a disbursement its opponents like Britain or the Czech Republic can be outvoted.

Under the Commission’s proposal, Greece would get the whole €7 billion in one go, allowing it to redeem its bonds held by the European Central Bank on Monday and pay its overdue obligations to the International Monetary Fund.

The Commission proposal, which is to be put to EU finance ministers for approval later on Wednesday, makes clear however that Greece can only get the bridge loan if it passes a set of reforms in its parliament on Wednesday.

It also has to formally begin bailout negotiations with the ESM - a process that could start on Thursday or Friday.

To make sure the 7 billion can be raised quickly, the Commission, which would be borrowing the money, would be allowed to do it via the private placement of notes.